Europe
Western & Eastern Europe is forecast to see minimal or negative GDP growth in the 4th Q of 2023:
The European Construction sector is poised to see the start of a recovery as we move into the 2nd half of 2023, hopefully this trend will continue as we transition into 2024.
We are starting to see an increase in new and revamped Industrial facilities across the UK, Germany, France and Italy as we move into the 2nd half of 2023, perhaps an indication that these countries and the rest of Europe are set to see a more normal construction situation in 2024 and beyond.
In the UK, residential, civil and industrial construction is seeing some increased activity from the previous slow 6 month period. Also, the UK is experiencing a growth spurt in new and refurbished hospitals, medical facilities and retirement type communities related in some way to the UK’s aging population. The UK’s construction sector is estimated to be a $390 billion or close to 7% of the country’s GDP. Look for slow but steady growth in 2024 to $400 make the UK the 7th largest construction market.
The UK Government has decided to delay the HS2 major rail project, one of the largest construction projects in the UK by 2 years. This project has experienced major cost overruns. The UK Government has also delayed a number of additional infrastructure capital projects. Substantial inflation and increased construction material and labor costs are the main reasons for these deferments. The UK’s inflation rate is extremely high at between 7% and 8%, look for this rate to start to moderate in the next 3 months.
A number of major and mid-sized UK construction related companies have gone out of business in the last 6 months which is a troubling trend for the remainder of 2023. The UK pound remains weak against the US dollar on growing concerns regarding the stability of the UK finances, this could further increase inflation, oil & many imported items are priced in US dollars. The UK pound has fallen by more than 6.3% against the US dollar in the last 6 months. The UK construction sector contracted by as much as 20% to 25% over the last 3 years, the consensus is that the worst is over and better days are ahead, slow growth is the forecast for the UK’s construction sector.
Many German capital projects were put on hold in the 2nd half of 2022 due to the Russian / Ukraine conflict and the potential of a serious gas shortage. Construction activity in Germany is marginally improving from 6 to 9 months back. The German Government has allocated billions of Euros for the expansion of Germany’s infrastructure that includes new and refurbished highways, bridges, ports and rail facilities Germany’s inflation rate remains very high at between 5.9% and 6.3%, look for this rate to start to moderate in the next 6 months. Recent reports suggest that Germany and some other European countries appear to be heading into a recession as we move into the 4th Q of 2023.
New Irish housing starts, a major indicator of the Irish economy, increased considerably in May and June, indicating that the impact of construction escalation is starting to trend downwards, which portends to the 2nd half of 2023 being a much better year that the 3 previous years for the Irish construction sector.
Many French capital projects were put on hold in the 1st half of 2023 due to the Russian / Ukraine conflict. Construction activity in France is gradually starting to improve. The French Government is projected to increase future expenditures on new and refurbished roads, bridges, ports / airports and rail facilities. Which point to the 2nd half of 2023 being a much better period that the 3 previous years for the French construction sector. France’s inflation rate is high at between 4.2% and 4.7%%, look for this rate to start to trend downwards in the next 3 months.
The value of the Euro has been progressively declining against the US dollar for the best part of 18 months, some economists are projecting that the Euro could fall to between 0.90 and 0.95 to the US dollar in the next 3 months, this of course will impact inflation in Europe and could be the catalyst to increase construction related materials costs.
House building and commercial construction work, such as hotels, offices, warehouses and shopping malls have also experienced a slowdown in the last six months in most European countries, however latest indications are that this sector is starting to see some positive activity.
The forecast for construction inflation in the Euro Zone is 5.2% to 5.6%, in Belgium it is 4.1%, to 4.4% Spain is forecast to see 1.8% to 2.2% and Italy is forecast to see inflation in the 6.2% to 5.7% and the Netherlands is expected to experience 5.3% and 5.8% escalation in the 4th Q of 2023.
